When a Small Business Term Loan is the Right Funding Choice for Your Business

Small Business owners often find themselves in need of additional capital to grow their businesses. A small business loan can help achieve this when you don’t have spare cash but can demonstrate the need for the loan and the cashflow to pay it back. Term loans are used for one-time financing needs, such as equipment or vehicles, expansion or renovation, or long-term working capital/consolidation—for example, new vehicles, equipment or money to grow.

How a business loan works

With a small business term loan, the approved funds are immediately deposited into your account by your lender, then you pay regular, consistent principal and interest payments every month until the loan is repaid.

Term loans are approved for a specific time (commonly 3-5 years but in some circumstances can be up to 7 years) and are most often used for fixed assets (equipment, vehicles), improvements (such as renovations) or to grow (adding capacity). In all cases, the term loan involves a contract between you and the bank, detailing the length of terms, the loan amount, a repayment schedule, the interest rate and collateral against your assets.

A business term loan is useful when:

• You’ve planned capital expenditure, for example, a contractor needs to upgrade their heavy machinery
• You want to keep existing cash reserves for future needs such as plugging cash flow gaps, or to take advantage of seasonal discounts for materials or inventory
• It makes sense to re-finance or consolidate payments for existing debt that may be a higher interest rate. Find out more on the pros and cons of different finance options
• There are investment or future-proofing opportunities such as upgrading infrastructure, scaling up your team, exporting or integrating the supply chain

Remember a term loan from a bank is usually presented as a long-term liability on your balance sheet compared to a line of credit, which is a short-term liability. Learn more about balance sheets

• Some examples of our customers using business loans include:
• A restaurant with a need to renovate and keep any spare cash to manage the impact of seasonality, when sales fluctuate outside their control
• A construction firm winning a tender for a new project and needing to purchase equipment and increase staff fast
• A retailer that has been using credit cards to fund inventory and would like to convert the balance into a loan to lower interest payments and better manage their payments

Three key benefits of getting a business loan from a bank

1. You get to speak to a real person who knows you and your business history. TD Bank’s business specialists can offer guidance on all aspects of your business banking, and connect you to products that help
2. Having all your banking in one place allows you to connect all your TD business accounts like checking, loan and even merchant solutions, making your banking operations easier and providing TD Bank with a balanced picture of your business in one place. TD also offers lower relationship interest rates on loans when you have a business checking account, Bill Pay and set up automatic loan payments
3. As every business is different, a bank will have multiple options to customize a solution that fits your unique circumstances, giving your bank a better opportunity to help your business

Compare the terms between a loan, a line of credit and a commercial mortgage

Other useful funding sources

Once you’ve determined how much money you need, it could be possible to find some of the cash internally to reduce the amount you need to borrow. For example, selling equipment you don’t use often (leasing it when you do), shortening your cash cycle or reducing the amount of inventory you hold.

Other practical ways to complement a business loan could be adding more of your own money, borrowing from friends and family, accessing outside investors or possibly tapping into any eligible grants and subsidies.

Next steps

Talking to your TD Small Business specialist about your circumstances and needs is your first step. Determining how much you may need to borrow is a balancing act—too little and you may need to ask for more later (and go through the application process again), too much and you’re paying for money you don’t need.

You can try the TD Bank loan calculator to identify possible repayments, then add the numbers into your cash flow forecast to be confident you can pay on time, every time. You can also download in advance the loan documents you’ll need to prepare for a business loan.